Determine what is the size of the gdp gap

Reference no: EM13244625

1) Suppose the MPC is 0.75 if the government increasesexpenditures by $200 billion how far does the economy grow? if thegovernment decreases taxes by $200 billion how far does the economy grow?
MPC = 0.75 and MPS equals to 1-MPC= MPS which is = 0.25

how would the 200 billion affect the economy by decreases of taxes by government?

2) If the MPS is 0.25 and the economy has a recessionary gapof $5billion, what is the size of the GDP Gap?

Reference no: EM13244625

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